“Advance America,” or “Advance Executives”…?

February 23, 2011

The New York Times published an article yesterday which reported that – for the first time in 15 years – more bank branches closed last year than opened. The troubling part is that a disproportionate number of those closures happened in poor areas, while a disproportionate number of new branches opened in wealthy areas. Sources for the article worried that in the poor places that now have no banks, “…the vacuum [would] be filled by so-called predatory lenders, including check-cashing centers, payday loan providers and pawnshops.”

That brought to mind a couple of 8-Ks that Advance America, Cash Advance Centers, Inc. (AEA), the nation’s largest payday cash advance lender, filed on Feb. 18. Reasonable minds may differ about how the company is doing, depending on whether you’re one of the company’s executives, or a shareholder, or a guy in Hawaii who now owes an $88.25 fee because he borrowed $500 for 14 days (that’s an APR of 460.16%, according to the company’s website).

No surprise here: It’s far better to be an executive than a customer of Advance America, as an 8-K the company filed late last Friday afternoon reveals.

The Chief Executive Officer, Kenneth E. Compton, got a nice raise for the third consecutive year. According to the filing, Compton’s base salary for 2011 is now $750,000 per year, retroactive to Jan. 1. That’s up from the $725,000 base salary he got in 2010, and the $658,269 base salary he received in 2009. Compton also got a cash bonus of $1.16 million, and the company gave him a Change in Control agreement that will pay him 2.5 times the amount of his base salary and target bonus if he’s “…terminated other than for cause or voluntarily separates for good reason in connection with a Change of Control of the Company.”

J. Patrick O’Shaughnessy, Advance America’s CFO, also fared pretty well. His 2011 base salary jumped to $465,000 per year, as of Jan. 1. That’s an increase from his 2010 base salary of $425,000, as well as his 2009 base salary of $369,231. O—Shaughnessy got a cash bonus of $442,000, and he, too, got a Change in Control agreement that protects him (although his severance multiple is 2 times his salary and target bonus).

But what about the shareholders? Are they benefitting from the fat fees that Advance America’s borrowers pay, just as Compton and O’Shaughnessy are? Not much. The stock price is up 3.59% from where it traded a year ago, and the 8-K and the accompanying earnings release filed Feb. 16 advise shareholders that they’re going to receive a whopping quarterly cash dividend of $0.0625 per share. Shareholders could have done 10 percentage points better by investing in the S&P 500 index.

The company blames regulatory restrictions for cutting into its profitability, and it reported:

“For the year ended December 31, 2010, total revenues decreased 7.3% to $600.2 million, compared to $647.7 million for the same period in 2009. Total revenues for the quarter ended December 31, 2010 decreased 7.5% to $160.3 million, compared to $173.2 million for the same period in 2009.”

Yet Compton described the company’s performance as “solid” and its results as “strong.” Of course, this is the same guy who said, “As we look toward 2011, Advance America remains committed to providing a simple, transparent, and regulated credit option that delivers high rates of customer satisfaction and helps to meet the varied financial needs of hardworking consumers.” You know… the same “hardworking consumers” who pay his company’s triple-digit fees – and his million-dollar bonus.

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